Chilly Neighbors

Russia's trade war on Ukraine, aimed at stopping its neighbor from moving closer to the European Union, began in earnest last July not with a carrot, but with a chocolate bar. Peter Poroshenko, a Ukrainian parliamentarian who owns Roshen, the Hershey's of the Ukraine, was in his office when he read in the morning paper that Russia's chief food inspector was banning all chocolate imports to Russia from his factory.

"Russia's chief food inspector said that my chocolates contained carcinogens," Poroshenko recalled in an interview this weekend in Yalta, where he was attending a conference sponsored by Ukrainian oligarch and philanthropist Victor Pinchuk. Moscow's ban applied only to Roshen's Ukrainian-made chocolates. The company's Russian-made chocolate products were safe, the inspector reported. Exempted, too, was Roshen chocolate made in Hungary and Lithuania. "Only chocolate from Ukraine was somehow mysteriously tainted with cancer-causing agents," said Poroshenko, whose factories employ some 20,000 people. His company, the world's fifteenth-largest chocolate producer, gave Russian officials safety certificates from European purchasers and the U.N.'s main food agency, provided other studies documenting product safety, and urged Russian inspectors to visit the Ukrainian plant themselves to examine it, but the Russians did not respond. "This is not about chocolate or health and safety," Poroshenko said. "It's all about politics."

The politics are ugly, indeed. Russian president Vladimir Putin has been steadily strong-arming the former Soviet republics into shunning European and other Western associations and renewing their ties with Moscow. The U.S. ambassador in Kiev and American diplomats in the region have publicly endorsed closer ties between Ukraine, the E.U., and the West. But senior Obama administration officials in Washington, still hoping for an elusive "reset" of America's rocky relations with Moscow and preoccupied with securing Russian cooperation on Syria and Iran, have seemed reluctant to denounce Putin's campaign to restore political and economic dominance over the now-independent states that were once part of Russia's empire.

Armenia, which became independent following the Soviet Union's collapse in 1991, has also been feeling Moscow's pressure. Like Ukraine, Armenia had been on the verge of signing an association agreement with the 28-member European Union, but it abruptly cancelled its plans to do so in September and announced that it would join Russia's Eurasian Customs Union, which includes Belarus and Kazakhstan. At the Yalta conference, prominent political figures from multiple countries—including Bill and Hillary Clinton, Tony Blair, David Petraeus, Lawrence Summers, and the presidents of Ukraine, Israel, and Lithuania—said that Armenian president Serge Sarkisian had abandoned plans to join forces with the E.U. after Russian officials threatened to increase arms shipments to Armenia's rival and foe, Azerbaijan, with whom it has a longstanding territorial dispute. Russia has shipped an estimated $1 billion worth of military equipment, including artillery and tanks, to the oil-rich, Muslim-majority nation.

Russia has also stepped up economic pressure on Moldova, which, like Ukraine, remains heavily reliant on Russian gas. The BBC reported in September that Dmitry Rogozin, a senior Russian envoy, recently reminded Moldovans that "energy supplies are important in the run-up to winter. I hope you won't freeze." But so far, Moldova's president, Nicolae Timofti, seems determined to sign up with the E.U. and move his country closer to the West, despite Russian sanctions and warnings. Moldova, he said, "cannot live under pressure or threats."

Ukraine has been experiencing similar economic bullying. While the latest chapter in Russia's campaign began with chocolate, Ukrainian exports of agriculture, dairy, and meat products have also been blocked on alleged sanitary grounds, and exports of steel pipes and heavy industrial products have been affected as well. Diplomats and experts on Ukraine predict that Russian political and economic pressure will rise sharply in coming weeks on Ukraine and other former Soviet states contemplating signing the association accords. Ukraine, Moldova, and Georgia are scheduled to sign these agreements at an E.U. summit in Vilnius, Lithuania in late November. The agreements cover not only trade, but also requirements for greater government transparency and political reform. The agreements would put the states on the path to full E.U. membership, a prospect that has infuriated Russia. Though Ukrainian president Viktor Yanukovych has already instituted reforms required by the E.U., the roughly 1,000-page association agreements would commit his country—in which Soviet-style bureaucracy, security, and political traditions have deep roots—to pursue even more extensive economic, judicial, and political changes.

At Yalta, some European leaders expressed doubt that Ukraine has reformed sufficiently to qualify for E.U. associate membership. Some officials criticized the country's deeply entrenched public corruption and often flagrant violations of human rights and the rule of law. For instance, European leaders have insisted that Yulia Tymoshenko, a former prime minister found guilty of corruption in 2011 and sentenced to seven years in jail, be released prior to any association deal. Tymoshenko was convicted of abusing her office by signing a costly gas deal with Russia in 2009. Known colloquially as the "gas princess," she is said to suffer from a debilitating back injury. Several opposition leaders and Western officials predicted that Yanukovych would agree to release her so that she can seek medical treatment outside of the country. But the Ukrainian president, who confronted angry opposition critics at the Yalta conference, did not tip his hand on her political fate or on whether he intends to sign the association agreement. He comes from eastern Ukraine, where support for a close relationship with Russia is strongest.

Sergey Glaziev, a key Putin advisor who has called Ukraine's planned association agreement with the E.U. "suicidal," warned the 46 million Ukrainians this weekend that they would suffer economically if they spurned Russia's customs union in favor of closer ties with the E.U. and the West. Would the E.U. bail out Ukraine should it default on its debt? he asked. Glaziev, the only senior Russian official to attend the conference, warned that Russia's and Ukraine's economies were deeply intertwined. Ukraine's economic condition is indeed precarious. The nation's public debt, $69 billion, represents 38 percent of expected GDP, and the government was unable or unwilling to carry out its reform pledges to the International Monetary Fund. The Ukraine economy contracted by roughly 1–2.5 percent in the last four quarters. Reserves of foreign currency have dropped sharply; in August, they covered just 2.7 months of imports, a financial vulnerability that Russia has shrewdly exploited.

But Anders Aslund, a senior fellow at the Peterson Institute, offered a more optimistic picture, pointing out that the E.U. and Russia were now equally important to Ukraine as export markets. In 2012, Ukraine sold one-quarter of its exports to Russia and a roughly equal share to the E.U. Each market accounted for about 30 percent of Ukraine's imports. Moreover, Aslund and other economists predict that Ukraine's imports of Russian gas will drop sharply in future years: Ukraine has signed or is expected to sign shale-gas exploration and production deals with Western energy giants Shell and Exxon Mobil.

So far, Russia's strong-arm tactics seem to have backfired. Pollsters say most Ukrainians, especially younger, better-educated citizens, have grown increasingly supportive of the E.U. association agreement as Putin steps up his offensive against it. Some feel the Russian president has insulted Ukraine's culture and identity. "I don't want a trade war with Russia," says Poroshenko, the chocolate king. "I want good relations with Russia. But what Russia has done is an outrage." Putin's economic warfare has become an emotional issue for Ukrainians, he added. The Russian boycott has definitely reduced his company's bottom line. "But ultimately," he says, "Ukraine's future is more important than my personal welfare."